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What Is A Breach Of Contract?

Anytime a business enters into a contract with another business entity or individual, it should be able to expect that all parties will uphold the terms of the agreement. When one of the parties fails to fulfill a promise or obligation set forth in the contract, you may be able to file a breach of contract claim to seek a remedy.

What is a contract?

A contract is a written or spoken agreement between two parties. Each party defines their obligations under the terms of the contract. The sense of having a written contract is that it carries with it the weight of legal action. When one party fails to fulfill their obligations under the terms of the contract, that party can be held liable in a court of law.

Oral vs. written contracts

In some cases, oral agreements or those made only on a handshake may be enforceable in a court of law. However, no contract or business litigation attorney would be advising his client well if they told them this was the best way of doing business.

Additionally, there are some contracts that are only enforceable if they are in writing. These include contracts that:

  • Involve the sale of land or payment of debt;
  • Involve the sales of goods over $500;
  • Would be impossible to satisfy within one year’s time; and,
  • Extend beyond the lifetime of the individual performing the duties of the contract.

What is a breach of contract?

A breach of contract occurs when one party reneges on the contract by:

  • Failing to perform;
  • Saying it will not perform its obligations in the future; or
  • Making it impossible for you to perform your obligations under the agreement.

Material vs. immaterial breaches

The court will need to determine if the breach is material or immaterial. In other words, was the breach major or minor and should the contract be allowed to move forward? In cases where the court rules that the breach is material, the breaching party stands to lose a significant amount of money.

Material vs. immaterial breaches

The “heart” of the contract that renders the agreement “irreparably broken,” defeating the purpose of the contract. It is the root or core of the contract giving the contract its value. In the case of a material breach, the breaching party has done something significantly different than fulfill the terms of the contract. For instance, if you are contracting with a construction company to construct residential apartments and they build you a spot that would be better suited to a restaurant, they have breached the terms of the contract. Remedies may include canceling the contract entirely, demanding payments made to satisfy the contract be returned, and damages related to lost time or income.

Immaterial (or “partial”)

A minor breach resulting in minimal consequences, if any. As an example, if a construction company is contracted to build residential apartments but one of the apartments isn’t getting hot water, then the breach is minor and easily fixed. However, it is the construction company’s job to fix that problem and they should incur the costs related to it.

How is a determination made as to whether or not a breach is “major” or “minor”?

The following criteria are used:

  • How much of the work has already been satisfied by the breaching party?
  • Was the breach due to negligence, fraud, or just an innocent mistake?
  • Can the breaching party fulfill the duties laid out in the contract?
  • Has the plaintiff received substantial (or any) benefit from the work of the defendant?
  • What is the extent of the plaintiff’s compensation?
  • How large of a problem will it cause the breaching party if the court rules that the breach was material as opposed to immaterial and is that commensurate with the defendant’s level of misconduct?

Actual vs. anticipatory breaches

Contract breaches can also be divided into anticipatory or actual breaches.

Anticipatory breaches

These are characterized by one party demonstrating their inability or lack of willingness to satisfy the terms of the contract before a completion date. In this case, an aggrieved party may prevent evidence against an allegedly breaching party that the allegedly breaching party either cannot or will not satisfy the terms of the contract. To do this, the party claiming that there is a breach must show that:

  • There’s no possible way the breaching party can fulfill the terms; or,
  • The breaching party indicates they have no intention of fulfilling the terms of the contract.

Actual breaches

These are characterized by those in which one party fails to, neglects to, or otherwise doesn’t fulfill their obligations under the contract. These can either happen during the contract or at the end date of the contract. In this case, the non-breaching party need only show that the terms of the contract were not satisfied.

Consequences of a breach of contract

After a breach, one or both parties may wish to:

  • Enforce the contract terms; or,
  • Recover financial losses or harm caused by the breach.

There are several ways to resolve contract disputes:

  • Informal resolution between the parties
  • Alternative dispute resolution
  • Mediation
  • Arbitration
  • Trial

What remedies are available?

As the non-breaching party, you are entitled to relief (remedies):

  • Damages: Monetary compensation for your harm encompassed in one or more of the following forms:
  • Compensatory: Awarded to compensate an aggrieved party for monetary losses related to the breach.
  • Punitive: Awarded when the breach is based on fraud, negligence, or other unconscionable business practice and are meant to punish the breaching party for their actions.
  • Nominal: In cases where one party has violated the spirit of the contract, but there was no financial loss suffered by the non-breaching party, the court may award nominal damages of a very small amount. In these cases, it may allow the aggrieved party to pursue punitive damages or simply make a decision in favor of one party or the other.
  • Liquidated: When the non-breaching party is the one who is receiving money to perform some task, the court can order the breaching party to pay that amount.
  • Specific Performance: Court orders the breaching party to perform its obligations per the terms of the contract
  • Cancellation and Restitution: The contract is void (cancelled) and you receive restitution, placing you back in your position prior to the breach.

What Should I Do in the Event of a Contract Breach?

In some cases, contracts will define the terms of what should happen in the event of a breach. Some contracts require that the dispute goes into arbitration or mediation. Your breach of contract lawyers can review contracts prior to and during their lifetime to ensure that you are being dealt with fairly.

If you feel that a contract has been breached, you should alert the other party with your problem. In cases where you are the breaching party, you should make every effort to alert the non-breaching party that an unintentional breach has occurred. This can save you legal issues down the road.

You should discuss these issues with your attorney prior to alerting the other party in either event. It is important to understand your liability and prevent exposing yourself to overly severe remediation.

Our New Jersey Breach of Contract Lawyers Can Help

If you have a contract dispute, our knowledgeable contract lawyer at Snellings Law LLC is able to:

  • Review and analyze your contract
  • Explain your options to seek resolution
  • Develop the best strategy to fight for you.

Contact us today to learn more about how we can help.

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